Argetina Plans Windfall Tax On Exporters

by Mike Godfrey, Tax-News.com, New York

26 February 2002

The cash-strapped Argentine government has confirmed that it may need to print up to 1bn new pesos this month and in its desperate search for money has revived a previously rejected idea to impose a 'windfall' tax on major exporting companies which it says have benefited from the devaluation of the peso.

Deputy Economy Minister Jorge Todesca said the government plans to issue 1 bln pesos to compensate for this month's expected shortfall in tax receipts. Todesca told Radio America yesterday that the 2002 budget draft foresees a 3.5 bln peso expansion of narrow money supply throughout the year, and that so far this year the central bank has already made an "advance" of 350 mln pesos to help the government out.

Todesca said that there would be no money to pay civil servants' salaries this month; but the presidency's secretary general, Anibal Fernandez, said that under current financial conditions, with a floating peso, it would not be appropriate to print money to pay salaries.

Financial analysts say that tax receipts in coming months are likely to be between 20 and 30 per cent down year on year, and President Eduardo Duhalde suggested exporters who have benefited from the devaluation of the peso could pay a special tax that would go towards alleviating growing poverty. "That those who have earned extraordinary sums - important companies, exporters - should pay an extraordinary tax, yes, that is something we're working on," Mr Duhalde told reporters. "We urgently need to address the social problems in Argentina."

The news will do nothing to ease negotiations between foreign investors and the Argentine government as they renegotiate contracts torn up when the peso was devalued in January. When a windfall tax was suggested by previous President Fernando de la Rua in October 1999 he was forced to back down after an outcry from foreign companies which had invested heavily in the purchase of Argentinian assets during the 1990s.

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